Tuesday, August 30, 2005

This week the Economist's cover story talks about the "olioholics," America and China.

It is easy to point a finger at China's growing oil demand (which has in fact cooled off this year), but America remains the biggest consumer, using one-quarter of the world's output of the black stuff. America uses 50% more oil per dollar of GDP than the European Union, largely because consumers pay less. As petrol prices have hit $3 a gallon in some cities, there has been an outcry from motorists. Even so, petrol remains dirt cheap in America, compared with Britain or Germany where prices are above $6 a gallon. America's heavy dependence on oil not only leaves the economy more vulnerable to a supply shock, it also pushes prices higher for the rest of the world.The best long-term solution—for America as well as the world economy—would be higher petrol taxes in the United States. Alas, there is little prospect of that happening. America, unlike Europe, has preferred fuel-economy regulations to petrol taxes. But even with those it has failed abysmally. These regulations have been so abused that the oil efficiency of its vehicles has fallen to a 20-year low. This week, the Bush administration announced proposals for changing the fuel-economy rules governing trucks and sport-utility vehicles, but failed to close loopholes that allow these gas guzzlers to use more petrol than normal cars, a shameful concession to carmakers.America and China, in their different ways, are drunk on oil consumption. The longer they put off taking the steps needed to curb their habit, the worse the headache will be. George Bush once learned that lesson about alcohol. It is time for him to wean America off oiloholism too.

There is a good reason why tighter fuel efficiency standards don't lower gas consumption. Here is an explanation:

"The pursuit of efficiency," write Peter Huber and Mark Mills in "The Bottomless Well," their superb book on the future of energy, "has been the one completely consistent and bipartisan cornerstone of national energy policy since 1970."We're told that higher mpg can even defeat our enemies. In a recent article that linked oil dependency with terrorism, Fareed Zakaria, editor of Newsweek International, concluded, "It's true that there is no silver bullet that will entirely solve America's energy problem, but there is one that goes a long way: more fuel-efficient cars. If American cars averaged 40 miles per gallon, we would soon reduce consumption by 2 million to 3 million barrels of oil a day."Increases in energy efficiency have been the rule in the United States for a century -- and especially in the past 30 years. But, as Huber and Mills write, "Efficiency doesn't lower demand, it raises it…. Efficiency has come, and demand has risen apace."

In this graph, the authors show how the "energy cost" of transportation in the U.S. fell by nearly one-third between 1973 and 2003; that is, we used to use nine gallons of fuel for every vehicle mile, now about six. But over this same period, total fuel use did not drop by one-third (as it would under the silly static analysis employed by Mineta and Zakaria); instead, fuel use rose by more than half, from a little under 120 billion gallons per year to over 180 billion gallons.This result is predictable in the world of economics. Only in the world of politics can it be ignored, or distorted.When something works better or more efficiently, it is, by definition, cheaper, so we want more of it. Demand for computers rose sharply, for example, as faster microchips and better software increased the machines' ability to do more.

The conclusion, it seems to me, would be that to lower oil consumption it would be necessary for the United States to raise taxes on gas. I am not sure whether this is a good idea, and it will surely not happen in the near future, though I must admit that the Economist makes a good point.

Favourite Quotes

"To my mind, this is irregular. It is un-English; it is un-American; it is French." Mark Twain: Concerning The Jews, Harper's Magazine, March 1898

"This is the sort of pedantry up with which I will not put." Winston Churchill: Pencilled in the margin of a minute issued by a civil servant who was objecting to the ending of a sentence with a preposition and the use of a dangling participle in official documents.

"To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say: You turn if you want to. The lady's not for turning!" Margaret Thatcher: Conservative Party conference speech, Brighton, 10 October 1980

"Who was that lad they used to try to make me read at Oxford? Ship- Shop- Schopenhauer. That’s the name. A grouch of the most pronounced description." P. G. Wodehouse: Carry On, Jeeves – Clustering Round Young Bingo

"Happiness is having a large, loving, caring, close-knit family in another city." George Burns

"Never give in - never, never, never, never, in nothing great or small, large or petty, never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy." Winston Churchill: Harrow School speech, 29 October 1941

"The profits of 'protection' go altogether to a few score select persons—who, by favors of Congress, State legislatures, the banks, and other special advantages, are forming a vulgar aristocracy, full as bad as anything in the British or European castes, of blood, or the dynasties there of the past." Walt Whitman: Prose Works, III. Notes Left Over - 11. Who Gets the Plunder?

"Never in the field of human conflict was so much owed by so many to so few." Winston Churchill: House of Commons speech on August 20, 1940. (at the peak of the Battle of Britain, referring to the RAF airmen)

"And who knows? Somewhere out in this audience may even be someone who will one day follow in my footsteps, and preside over the White House as the President's spouse – and I wish him well." Barbara Bush: Wellesley College commencement address, 1 June 1990

"We shall fight on the beaches. We shall fight on the landing grounds. We shall fight in the fields, and in the streets, we shall fight in the hills. We shall never surrender!" Winston Churchill: House of Commons speech, June 4 1940 (referring to Dunkirk)

"Earnestly hope we shall not have another war with meat-coupons and no sugar and people being killed – ridiculous and unnecessary. Wonder whether Mussolini's mother spanked him too much or too little - you never know, these psychological days." Dorothy Sayers: Busman'sHoneymoon - Diaries of the Dowager Duchess of Denver

"The gunfire around us makes it hard to hear. But the human voice is different from other sounds. It can be heard over noises that bury everything else. Even when it's not shouting. Even when it's just a whisper. Even the lowest whisper can be heard over armies – when it's telling the truth." Sydney Pollack et al.: The Interpreter [2005] (Dedication from the memoirs of Edmond Zuwanie)

"An appeaser is one who feeds a crocodile – hoping it will eat him last." Winston Churchill